Question

Highline Hospital provides a wide range of health services in its community. Highline’s board of directors has authorized the following capital expenditures:Intra-aortic balloon pump ...... $1,400,000Computed tomography scanner .... 850,000X-ray equipment ......... 550,000Laboratory equipment ....... 1,200,000Total .............. $4,000,000The expenditures are planned for October 1, 20X7, and the board wishes to know the amount of borrowing, if any, necessary on that date. Rebecca Singer, hospital controller, has gathered the following information to be used in preparing an analysis of future cash flows.Billings, made in the month of service, for 20X7 are shown next, with actual amounts forJanuary–June and estimated amounts for July–December:Month ............. Amount BilledJanuary ............ $5,300,000February ............ 5,300,000March ............. 5,400,000April ............... 5,400,000May .............. 5,700,000June .............. 6,000,000July (estimated) ........... 5,800,000August (estimated) ......... 6,200,000September (estimated) ....... 6,600,000October (estimated) ........ 6,800,000November (estimated) ....... 7,000,000December (estimated) ........ 6,600,000Ninety percent of Highline billings are made to third parties, such as BlueCross, federal or state governments, and private insurance companies. The remaining 10% of the billings are made directly to patients. Historical patterns of billing collections are as follows:

Singer expects the same billing and collection patterns that have been experienced during the first 6 months of 20X7 to continue during the last 6 months of the year. The following schedule presents the purchases that have been made during the past 3 months and the planned purchases for the last 6 months of 20X7.Month .............. AmountApril .......... $1,300,000May ........... 1,450,000June ........... 1,450,000July ............ 1,500,000August .......... 1,800,000September .......... 2,200,000October ........... 2,350,000November .......... 2,700,000December ......... 2,100,000

All purchases are made on account, and accounts payable are remitted in the month following the purchase.● Salaries for each month during the remainder of 20X7 are expected to be $1,800,000 per month plus 20% of that month’s billings. Salaries are paid in the month of service.● Highline’s monthly depreciation charges are $150,000.● Highline incurs interest expenses of $180,000 per month and makes interest payments of $540,000 on the last day of each calendar quarter.● Endowment fund income is expected to continue to total $210,000 per month.● Highline has a cash balance of $350,000 on July 1, 20X7, and has a policy of maintaining a minimum end-of-month cash balance of 10% of the current month’s purchases.● Highline Hospital employs a calendar-year reporting period.1. Prepare a schedule of budgeted cash receipts by month for the third quarter of 20X7.2. Prepare a schedule of budgeted cash disbursements by month for the third quarter of 20X7.3. Determine the amount of borrowing, if any, necessary on October 1, 20X7, to acquire the capital items totaling$4,000,000.